Credit Connect

Employee spend management specialist Concur, has released a major report examining the UK’s late payment culture, which is putting job creation at risk. The report, entitled Invoice Utopia, includes detailed YouGov polling of 1,233 British businesses and sheds new light on the consequences of poor invoice processes.

The report highlighted the consequences of late invoice payments, with businesses being forced to take action to protect cash flows. Responding to the problem companies said they would have to take the following steps: making redundancies (7 per cent), stopping planned investments (17 per cent), being unable to pay salaries (15 per cent) and significantly reducing innovation spend (10 per cent).

A key finding of the report is that 40 per cent of British businesses said they have received a late payment in the last month, a trend which could undermine job creation. Such a high volume of late payments is significantly worrying when 57,960 businesses each year – 23 per cent of the total number of business deaths – is currently caused by late payments.

The consequences of late payment culture were also exposed with 32 per cent of businesses saying they would feel a significant impact if their biggest customer did not pay an invoice for 90 days – a relatively common occurrence.

Tthe research discovered that 63 per cent of medium sized businesses (50-249 employees) receive late payments at least once every month, compared to 40 per cent of small businesses, dispelling the myth that smaller companies are often worst hit.

The polling revealed that 21 per cent of medium sized businesses said they would have to stop planned investment if their biggest customer failed to pay a substantial invoice for 90 days, 14 per cent saying that they would not be able to pay salaries and 15 per cent significantly reducing innovation spend. Most worryingly, compared to 6 per cent in small businesses and 7 per cent in large businesses, 11 per cent of medium sized companies said they would also be forced to make redundancies.

Emma Maslen, Senior Regional Director for Enterprise at Concur, explains this issue“As Britain builds its digital future, it’s shocking that so many medium- sized businesses are the most heavily affected by late payments. This underlines the very real risk this culture poses to the viability of some of the country’s leading employers. Although not cash-rich, small and micro businesses have the agility and flexibility to make strategic decisions when it comes to cash flow. And of course, enterprises more often than not have a ‘cash cushion’ available to bail them out in difficult situations. But for the mid-market, they have reached a position where they need to keep salaries and expenditure consistent, meaning they lack agility, but may be operating at a relatively slim margin in comparison to bigger players. This is crucial information about the oft-forgotten middle of our economy.”

Taking into account the business size of those deaths the report shows that approximately 353,000 jobs are being lost per year, or £549m through lost taxation capital. This figure does not include the average of 130 hours, or 16 working days, spent by the typical SME chasing late payments, meaning the overall impact of late payments could be substantially higher.

It’s no secret that late payments have long been an issue in British business – but indeed the scale of the problem has been thrown into sharp relief by the research. 73 per cent of the businesses researched were affected by late payments – 46 per cent on a monthly basis. Once more, medium businesses, along with enterprise, were affected more than small business (63 per cent for medium businesses, compared to 49 per cent of large businesses and 40 per cent for small businesses in the last month).

In parallel, medium-sized businesses are also the worst in regards to paying late, highlighting their reliance on steady cash flow. 56 per cent of medium-sized businesses admitted to paying late at least once a year, in contrast to 47 per cent at enterprise level – traditionally seen as the worst at paying on time.

These statistics show why Concur, as an expert in the area of payments, is launching the Invoice Utopia campaign, with a view to improve the world of payments between UK businesses. With Brexit spreading further uncertainty, 86 per cent of respondents said they wanted to see the same amount (59 per cent) or greater protection (27 per cent) through legislation for businesses affected by late payments. Therefore, a proactive approach to tackle late payments will have an enormous impact on the UK economy as we move into uncharted waters.

A major component of this will be the continued enforcement of duty to report. However, with 78 per cent of SMEs unaware about these new requirements, the Government, especially the recently announced Small Business Commissioner Paul Uppal, clearly needs to convey this message.

Dafydd Llewellyn, MD of UK SMB at Concur, concludes: “This report sets out a vision for an invoice utopia where IT ensures that late payments are a thing of the past. This can only be realised if change is present in technology, business culture and an innovative approach to payments and invoices. Businesses need to lobby harder when negotiating their original payment terms; large businesses need to realise the potential damage extortionate payment terms are bringing; government and regulators – in particular with the Small Business Commissioner and duty to report need to support all businesses; and technological tools that can give a clear picture of cash flow and payments should be utilised across the board. Only then will the burden be lifted from finance teams, businesses will have the room to grow and the UK economy will find itself in a powerful position to face the future.”